Best Buy managing to turn showroom into business

Shoppers continue to visit actual stores to check out merchandise in real life, which they then purchase on Amazon, where prices are often lower, and delivery is a valuable convenience.Reuters | August 24, 2016, 15:31 IST

NEW YORK: Best Buy is managing to turn its showroom into a business. The $13 billion U.S. electronics and appliance retailer's second-quarter results were nearly a mirror image of a year ago, buffed by share buybacks. Underneath the hood, however, the company's share of online sales is steadily growing. Amazon.com is still an existential threat, but Best Buy is figuring out how to hold its own.

Competing with Amazon consumes the strategic imperative of all retailers. Shoppers continue to visit actual stores to check out merchandise in real life, which they then purchase on Amazon, where prices are often lower, and delivery is a valuable convenience. Best Buy boss Hubert Joly, who was appointed four years ago, is working to reverse this by offering better services and improving its online offering. He's had a degree of success. The stock has doubled under his watch.

Still, the company's quarterly results show a stagnant business. Revenue and operating margins are the same as they were a year ago, and Best Buy expects more of the same. Yet online sales are growing nearly 25 percent per annum. They're still small at 11 percent of the top line, but their growth - without sacrificing margins - is encouraging. Moreover, Best Buy's capital discipline is impressive. The company bought back about 9 percent of all stock over the last year, while slightly improving its balance sheet. It's not pretty, but Best Buy is finding a way to survive the Amazon.